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Collaboration and License Agreements
6 Months Ended
Jun. 30, 2023
Revenue from Contract with Customer [Abstract]  
Collaboration and License Agreements Collaboration and License Agreements
Vertex Agreement - Overview

In February 2023, the Company and Vertex closed the Vertex Agreement pursuant to which the Company granted Vertex an exclusive worldwide license to research, develop, manufacture and commercialize ENTR-701, the Company’s intracellular Endosomal Escape Vehicle (EEV)-based therapeutic candidate for the treatment of myotonic dystrophy type 1 (DM1), as well as any additional EEV-based therapeutic candidates that may be identified by the Company for the potential treatment of DM1 in the course of the parties’ global research collaboration.

The Vertex Agreement provides for a four-year global research collaboration under which Entrada will continue to perform pre-clinical development of the Company's partnered candidate ENTR-701 pursuant to the mutually agreed-upon research plan (Research Plan). The Research Plan is overseen by a Joint Research Committee (JRC) as detailed in the Vertex Agreement. Pursuant to the terms of the Vertex Agreement, the JRC may amend the research plan to include additional DM1-related research activities with a goal of identifying other EEV-based therapeutic product candidates for the potential treatment of DM1. Vertex is obligated to reimburse the Company’s research expenses incurred in performing activities under the research plan.
Pursuant to the Vertex Agreement, the Company received an upfront payment of $223.7 million, and Vertex made an equity investment of $26.3 million by purchasing 1,618,613 shares of the Company's common stock, pursuant to a separate but simultaneously executed stock purchase agreement. The Company will be eligible to receive up to $485.0 million upon the achievement of certain research, development, regulatory and commercial milestones. The Company will also receive tiered royalties, from the mid to high single digits based on potential future net sales of licensed products as set forth in the Vertex Agreement.

The term of the Vertex Agreement will expire in its entirety upon expiration of the royalty term as set forth in the Vertex Agreement. Vertex may terminate the Vertex Agreement for convenience by providing adequate written notice to the Company. The Company may terminate the Vertex Agreement under certain specified circumstances, including in the event Vertex or any of its affiliates or sublicensees challenges directly or indirectly in a legal or administrative proceeding the patentability, enforceability, or validity of any licensed patent as set forth in the Vertex Agreement. Either party may terminate the Vertex Agreement for an uncured material breach by the other party or upon the bankruptcy or insolvency of the other party. Neither party may assign the agreement without the prior written consent of the other party, except that a party may assign its rights and obligations to an affiliate or third party that acquires all or substantially all of the business or assets to which the Vertex Agreement relates and agrees in writing to be bound by the terms of the Vertex Agreement.

Vertex Agreement - Accounting Analysis

The Company determined that the Vertex Agreement should be accounted for in accordance with ASC 606 as Vertex was deemed to be a customer. The Company assessed the promised goods and services under the Vertex Agreement in accordance with ASC 606. At inception, the Vertex Agreement included one performance obligation which was the combination of the exclusive license and the performance of the research activities for ENTR-701. The Company concluded that the license is not distinct from the research and development services for ENTR-701 during the research collaboration as Vertex cannot fully exploit the value of the license without receipt of such services. The Company also determined that Vertex's ability to engage Entrada to perform work on additional EEV-based therapeutic candidates for the potential treatment of DM1 through the JRC represented customer options. The Company concluded that these customer options do not represent a material right as these services will be reimbursed by Vertex at a price that represents standalone selling price for such services. Also pursuant to the Vertex Agreement, in the second quarter of 2023, Vertex engaged Entrada to perform work on additional EEV-based therapeutic candidates for the potential treatment of DM1. Such work is treated as a separate contract for accounting purposes and represents a separate performance obligation as the activities are distinct from the research activities for ENTR-701.

At the commencement of the arrangement, the Vertex Agreement has a fixed transaction price of $232.0 million, primarily consisting of the $223.7 million upfront fee plus a premium of $6.9 million related to the 1,618,613 shares sold to Vertex under the Stock Purchase Agreement when measured at fair value on the date of issuance. To determine the fair value of the common stock issued to Vertex, the Company utilized the fair value of the Company’s common stock as of the effective date of the Vertex Agreement and applied a discount for lack of marketability. The Company is also entitled to reimbursement of costs incurred associated with the delivery of services under the Research Plan. The Company utilized the most likely amount approach to estimate the expected cost reimbursement. The Company concluded that these amounts do not require a constraint and are included in the transaction price at inception. The Company considers this estimate at each reporting date and updates the estimate based on information available. Additional consideration to be paid to the Company upon reaching certain milestones are excluded from the transaction price as they are fully constrained as the Company concluded that they are not probable of being achieved as of June 30, 2023. The Company re-evaluates the probability of achievement of development milestones and any related constraint at each period end, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenue in the period of adjustment.

The transaction price at contract inception is fully allocated to the performance obligation for the combination of the exclusive license and the performance of the research activities for ENTR-701. The transaction price for the additional EEV-based therapeutic candidates performance obligation consists of the reimbursement of costs incurred associated with the delivery of services. The Company recognizes revenue associated with both performance obligations as the related research and development services are provided using an input method, according to the costs incurred as related to the respective research services and the costs expected to be incurred in the future to satisfy the performance obligations in accordance with each respective research plan. The transfer of control occurs over this time period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligations. As the Company progresses towards satisfaction of performance obligations under the Vertex Agreement, the estimated costs associated with the remaining effort required to complete the performance obligations in accordance with the research plans may change,
which may materially impact revenue recognition. The Company regularly evaluates and, when necessary, updates the costs associated with the remaining effort pursuant to the performance obligations under the Vertex Agreement.

The amounts received that have not yet been recognized as revenue are deferred on the Company’s consolidated balance sheet and will be recognized over the remaining research and development period until the performance obligation is satisfied. The performance obligations have not been fully satisfied as of June 30, 2023.

The following table summarizes the revenue recognized in connection with the Company's performance under the Vertex Agreement during the six and three months ended June 30, 2023.

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Collaboration service revenue$3,542$$8,400$
Recognition of upfront payment14,62835,030
Total$18,170$$43,430$

The aggregate amount of the transaction price allocated to the Company’s unsatisfied performance obligations and recorded in deferred revenue at June 30, 2023 is $197.2 million. The Company will recognize the deferred revenue related to the research and development services based on a cost input method, over the remaining term of the research plan.